a system dynamics analysis of boom and bust in the shrimp aquaculture industry

S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 305A system dynamics analysis of boom and bustin the shrimp aquaculture industry

Steve Arquitt,a* Xu Honggangb and Ron Johnstonea

Abstract

Driven by growing international demand for shrimp and stagnating catches of wild shrimp, the

shrimp aquaculture industry has grown remarkably over the past two decades. Initial hopes that

farmed shrimp could provide an environmentally benign alternative to over-exploited wild stockshave, however, proven disappointing. Although global growth has been steady, the industry has

experienced dramatic production crashes at national and sub-national scales associated with

severe environmental damage. From a systems perspective, the industry is prone to exceed andconsume its environmental carrying capacity, resulting in boom and bust patterns of develop-

ment. In this paper we describe a dynamic commodity system model built to examine boom and

bust in the shrimp aquaculture industry. Experiments with the model suggest that a policy thattaxes the industry and rebates proceeds to licensed producers may help shift the system toward

sustainability. Copyright © 2005 John Wiley & Sons, Ltd.

Syst. Dyn. Rev. 21, 305–324, (2005)

Introduction

Growing international demand for shrimp and stagnating catches of wildshrimp in the early 1980s created an opportunity for the development ofexport-orientated shrimp aquaculture industries (Csavas 1995). Countrieswith climate and natural resources suitable for shrimp farming, particularly inAsia and Latin America, seized on the opportunity, converting vast stretchesof coastline into shrimp farms. Growth in the sector has been spectacular overthe past two decades (Figure 1). In 1982 shrimp aquaculture (also known asshrimp farming) accounted for only about 5% of world shrimp supply; by 1994this figure had risen to 30% (Flaherty et al. 1999). Some experts estimate thataquaculture now accounts for 50% of world shrimp supply (Rosenberry 2004).Globally, farmer earnings from shrimp farming were estimated at U.S. $7billion in 2000 (FAO1 2002). In Thailand, one of the world’s largest exportersof farmed shrimp, the industry generated approximately U.S. $2 billion inexport earnings in 2000 (FAO 2002). In addition to providing social benefits ofemployment creation and foreign exchange earnings, many believed that shrimpaquaculture would take pressure off overfished wild shrimp stocks and offeran environmentally benign alternative to destructive practices of the shrimpcapture industry (Naylor et al. 2000).2

Steve Arquitt is a

research assistant with

the Centre for MarineStudies at the

University of

Queensland, Brisbane,Australia, where he is

working to develop

system dynamicsmodels for improved

management of coastal

ecosystems.

Xu Honggang is

Associate Professor ofSystem Dynamics at

the School of

Geography, Science,and Planning at Sun

Yat-sen University,Guandong, China.

Professor Xu’s special

interests are naturalresource management

and tourism planning.

Ron Johnstone is

Associate Professor

and Deputy Director ofthe Centre for Marine

Studies at the

University ofQueensland. His

research interests

include investigationsinto nutrient

interactions between

habitats and biotopes,encompassing

System Dynamics Review Vol. 21, No. 4, (Winter 2005): 305–324 Received January 2005Published online in Wiley InterScience Accepted June 2005(www.interscience.wiley.com). DOI: 10.1002/sdr.313Copyright © 2005 John Wiley & Sons, Ltd.

305

a Centre for Marine Studies, University of Queensland, Brisbane, QLD 4072, Australia. E-mail: [email protected] Sun Yat-sen University, Guandong, China.* Correspondence to: Steve Arquitt.

306 System Dynamics Review Volume 21 Number 4 Winter 2005

Fig. 1. Shrimp

aquacultureproduction in main

producing countries

(Source: FAO, Kautskyet al. 2000)

Despite the apparently bright picture of growth and export earnings at theglobal scale, the shrimp farming industry has exhibited an extremely unstablepattern of development strongly associated with ecological damage and nat-ural resource depletion. Examination of Figure 1 reveals patterns of boom andbust at national scales. In the early 1980s the industry grew rapidly in Taiwan,China and The Philippines only to suffer dramatic production crashes withina few years. Boom and busts have been observed both at national scalesand within countries. In Thailand, for example, the national productionfigures have remained high but mask a series of boom and busts in which theindustry has developed rapidly in one region only to crash and migrate toanother (Huitric et al. 2002). The production crashes have left extensive areasof abandoned shrimp ponds and depleted natural resources, in particularcoastal mangrove forests, and have caused social damage through loss ofemployment in shrimp farming and related side industries.

This paper describes a system dynamics model developed to examine theunderlying causes of boom and bust in the shrimp aquaculture industry andto aid in policy design for improved sustainability. The development of themodel was guided by a case study of shrimp aquaculture in Thailand. Thailandis one of the world’s leading producers and exporters of farmed shrimp, and itsshrimp aquaculture industry has been the subject of much study and debate.The model builds on earlier work modeling the shrimp commodity system

research on coral reefs,

seagrass beds, and

mangroves. ProfessorJohnstone is also

working to develop

appropriate tools andapproaches for better

integration of

environmental scienceinto decision making

processes for coastal

zone management.

S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 307

(Arquitt 1995; Arquitt et al. 2003) and was informed by the shrimp commoditymodeling project undertaken by the Sustainability Institute (Johnston et al.2002). The model is based on recognized commodity modeling principles(Meadows 1970; Sterman 2000) and is general enough to be applicable toshrimp aquaculture in other countries. It is hoped that this study will contrib-ute to the ongoing debate on policy for environmental sustainability of theshrimp farming industry and other aquacultural commodity systems.

Environmental limits to shrimp farming

The form of shrimp farming examined here is known as “brackish water”shrimp farming. Several species are farmed but all are marine species requir-ing salt water. For this reason shrimp farms are typically found along coastalmargins, often on the shores of estuaries and embayments lined or formerlylined with mangrove forests. “Mangrove” refers to a tropical coastal ecosystemtype that is alternately inundated and exposed by tides and dominated byspecies of salt-tolerant trees. Mangroves are the dominant ecosystem typefound in most shrimp farming areas and serve as an important resource basefor shrimp production by maintaining water quality through assimilation ofnutrients and pollutants (Rönnbäck 1999). Mangroves also provide shorelineprotection, and serve as nursery grounds for many commercially importantfish species, including wild shrimp3 (Hogarth 2002).

Shrimp farming is at once strongly dependent on supplies of clean intakewater and highly pollutive. The degree of pollution produced by a given farmis directly related to farming intensity. Farming intensity is usually categor-ized into one of three broad production modes. Traditional “extensive” shrimpfarming has been practiced in Asia for centuries. The farmer relies on feedoccurring naturally in the coastal waters, inputs are minimal and there is littlerelease of waste into the environment. Yields are comparatively low, in therange of 0.5–1.5 metric tons (live weight) per hectare of pond per year. “Inten-sive” farming is dependent on heavy inputs of commercial feed and chemicaltreatments. Yields are much higher, in the range of 7–15 metric tons (Kautskyet al. 2000). Demands on the ecosystem are also much greater. Intensive farmingproduces large amounts of wastewater contaminated with dissolved feed, deadshrimps, fecal matter, etc. that must be flushed from the pond and replacedwith clean water. Also, up to 500 metric tons of sediments per hectare of pondper year of extremely high organic content are produced and must be disposedof (Flaherty et al. 1999). The third category, “semi-intensive” farming, is inter-mediate between extensive and intensive in terms of inputs, yields, and envir-onmental impacts. In general it follows that the greater the farming intensity,the greater the demand placed on the ecosystem for waste assimilation.

Kautsky et al. (2000) have developed the concept of “ecological footprint”for shrimp farming. The ecological footprint with respect to water quality is


the area of adjoining intact mangrove required to assimilate farm waste andsustain production for a unit area of shrimp pond, the size of the footprintbeing directly related to the farming intensity.4 An indication of an area’scarrying capacity for shrimp farming can be obtained by dividing the man-grove area by the average footprint. If the carrying capacity is exceeded,organic waste from shrimp farms accumulates and yields fall due to pollutionand, in particular, to increased incidence of infectious shrimp diseases thatoccur under polluted conditions.

Causes of shrimp production crashes

In many industrial systems production busts occur as a result of over-investment in production capacity relative to market demand. Since the early1980s global shrimp aquaculture production has grown more or less continu-ously (Figure 1), whereas production crashes have occurred at national or sub-national scales even in the face of strong international demand. Underlying theproduction busts are failures of policy makers and authorities to recognizeindustry dependence on ecological services and take effective measures tolimit entry into the industry and preserve the natural capital that provides theservices. Shrimp farms have often been allowed to proliferate in numbers anddensities far exceeding the ecological carrying capacity. Furthermore, farmshave often been established directly within mangroves with the result thatlarge areas of mangrove have been cleared to make way for shrimp ponds,canals, and access roads. In sum, the shrimp farming industry has often ex-ceeded and consumed its carrying capacity. Such systems inevitably exhibitovershoot and crash behavior (Sterman 2000).

The case of Thailand

Boom and bust of commercial shrimp farming in Thailand has been welldocumented (Huitric et al. 2002). Since its beginnings in the early to mid1980s, the industry has shifted from one coastal region to another, first fromthe central to the western Gulf of Siam, then to the eastern Gulf, and finallyto the Andaman seacoast. It is estimated that Thailand lost approximatelyhalf of its mangroves during this time and that at least half of this lossresulted directly from proliferation and migration of shrimp farms (Barbierand Cox 2004; Huitric et al. 2002). Since the mid 1990s there has been asignificant move of shrimp farming to the interior, in particular to the centralChao Phraya River basin, using seawater brought in by truck (Flaherty et al.1999). The move to the interior is due to increasing difficulty of obtain-ing clean seawater suitable for shrimp farming in coastal areas (Huitric et al.2002).

As recognition of the environmental damage wrought by the industry in-creased through coverage in the popular press and through research studies,


the Thai government enacted measures to regulate shrimp farming, includinga ban on shrimp farming within mangrove areas and a prohibition on loansfor farms in mangroves. Ministerial regulations placed limits on pond effluentdischarge and required that all shrimp farms be registered. More recently theThai government has banned shrimp farming in interior regions due to risksof salinization of surrounding farmland, problems associated with disposal ofwastewater and sludge, and conflicts with neighboring rice and fruit farmers.Shrimp farming is now officially permitted only in designated near-shore areasof the coastal provinces (Flaherty et al. 1999; Szuster 2003).

Official policy changes in Thailand indicate that policy makers now recog-nize industry dependence on ecological services. However, policies address-ing environmental problems of the shrimp farming industry have not proveneffectual to date. For example, despite the ban on farming in mangroves,encroachment on officially protected mangroves continues. Also, regulationson pond effluents are commonly ignored and the majority of farms operatewithout licenses (Huitric et al. 2002). Reasons cited for non-complianceinclude inadequate sanctioning, and shortage of departmental resources tomonitor mangrove encroachment and farming practices and enforce regula-tions (Flaherty et al. 1999; Huitric et al. 2002; MIDAS 1995).

Model structure

General structure

The bulk of shrimp aquaculture production is traded on international markets;in the case of Thailand over 90% of production is exported. We have thereforemodeled Thai shrimp aquaculture within the context of an international com-modity system. To accomplish this, inventory, production, and ecologicalsectors specific to Thailand were developed. Rest of world (ROW) inventoryand production sectors model shrimp supply from all other countries. Wehave not included an ROW ecological sector on the assumption that world-wide shrimp farming and capture industries are able to maintain productionby moving into unexploited areas over the time horizon considered in thisstudy. Thai shrimp production is disaggregated into two sectors representingproduction undertaken within mangrove zones and production in coastalinland areas adjacent to mangroves. This makes it possible to model policythat shifts advantage from mangrove based to more sustainable near-shoreinland production. The model does not consider shrimp production in farinterior regions discussed in the previous section. Figure 2 shows principalfeedback loops operating between sectors.

The demand, inventory, and production sectors are based on the generic com-modity model developed by Meadows (1970) and refined by Sterman (2000).Balancing feedback loops between the demand, inventory, and production


Fig. 2. Organization

of shrimp commodity

model showingfeedback loops

between the sectors

sectors (loops B1, B2, B3, B4, B5) seek to equilibrate supply and demand byadjusting prices to maintain inventory coverage at desired levels. Balancingloops between the Thai production sectors and the ecological sector mimicenvironmental limits on shrimp production. When production rises throughfarming intensification (loops B6, B7) and expansion (loops B8, B9), theindustry ecological footprint increases and yields begin to fall as the footprintoutstrips the mangrove area. Expansion of mangrove shrimp farms directlyconsumes the mangrove resource base and ultimately results in a productioncrash (loop B10). Note that all feedback loops between sectors are balancing.Reinforcing loops causing growth of Thai production are contained within theThai production sectors.

Internal structure of sectors

We shall limit our discussion to the sectors most relevant to our policy ana-lyses: the Thai production sectors and the ecological sector.5

The Mangrove Shrimp Farm Production sector represents decision rulescontrolling shrimp farming within mangrove zones. The basic stock and flowstructure is shown in Figure 3.


Production is the product of farm area and yield with a delay to account forthe time lag between seeding the crop and harvest. Yield is a function offarming intensity and ecological effect. Intensity adjusts after a delay to a levelindicated by the expected mark-up ratio, formulated as the ratio of expectedrevenue to expected variable costs. The model does not explicitly distinguishbetween the three modes of farming intensity described earlier, but treatsintensity as a smooth continuum.

Initial investment is modeled as an exogenous one-time pulse. Farm areaexpands or contracts in response to expected profitability, which is formulatedas expected long-run profit divided by expected revenue. Expected profit-ability for new entry farms is based on yield expectations uninfluenced byecological feedback. This is because new farms are typically initiated in rela-tively unspoiled areas. Expected profitability for existing farms is based onyields that are influenced by the environment. This means that new farms areinitiated as existing farms are abandoned, mimicking the sequential exploita-tion of mangroves described by Huitric et al. (2002). A supply chain capturesdelays and momentum associated with planning and construction. Mangrovesare modeled as a partially renewable resource. We assume that some mangroveis cleared for other purposes at a constant fractional rate. Also, a fraction ofabandoned mangrove shrimp farm land is converted to other purposes. Weassume that the remaining abandoned area eventually regenerates back tomangrove. A stock representing mangrove seedlings captures inertia asso-ciated with regeneration.

Fig. 3. Simplified stock and flow structure of Mangrove Shrimp Farm Production sector. Variables outside the large rectangleare developed in other model sectors


The Thai Coastal Inland Shrimp Production Sector models shrimp farmingin the coastal inland adjoining the mangrove zone. The decision-making andstock and flow structure is similar to the Thai Mangrove Shrimp ProductionSector. The only notable difference is that mangroves are not cleared by farmexpansion and abandoned farm land returns directly to a stock of coastalinland available for farming.

The Ecological Sector models environmental influence on yields of mangroveand coastal inland shrimp farms. The sector structure is shown in Figure 4.

Fig. 4. Information structure of Ecological Sector

An industry ecological footprint is calculated based on average farmingintensity and total farm area. The indicated ecological effect on yields is anon-linear function of the ratio of mangrove area to industry footprint. Theecological effect on yields is a first-order exponential smooth of the indicatedeffect with time lag representing delays associated with accumulation ofcontaminants and with regeneration of environmental quality.


Base simulation

The simulation time horizon is 50 years. Euler integration was used with DTset to 0.125.

The base simulation shown in Figure 5 shows a decided overshoot andcollapse pattern of production similar to cases observed in Thailand, Taiwan,China, The Philippines and other countries. The variables shown are (1) Man-grove Area, (2) Total Thai Production, (3) Thai Mangrove Farm Production,and (4) Thai Coastal Inland Farm Production.

Fig. 5. Base simulationshowing Mangrove

Area (1), Total Thai

Production (2), ThaiMangrove Farm

Production (3), and

Thai Coastal InlandFarm Production (4)

over a time horizon of

50 years. Mangrovearea is given in

hectares. Productionfigures are given in

metric tons (live

weight)

The base simulation can be described in a series of five development phases:

1. Pre-investment phase, year 1970 to 1975. From year 1970 the mangrovearea decays gradually at a fixed fractional rate representing exploitation fortimber and conversion to other land uses. Shrimp farm area and productionare zero.

2. Exponential growth phase, year 1975 to approximately 1991. In 1975 shrimpfarms are initiated in mangrove and coastal inland areas and productionbegins to grow exponentially in response to attractive expected profit-ability. Mangrove farm production increases faster than inland becauseland acquisition cost is lower.

3. Decelerating growth phase, approximately 1991 to 1997. At approximatelyyear 1991 the growth of production begins to slow due to declining yieldscaused by environmental feedback as the ecological footprint begins toexceed the mangrove area, and as the mangrove resource base is consumed.


4. Collapse phase, year 1997 to year 2007. After reaching a peak around year1997 production drops rapidly as unprofitable farms are abandoned orconverted to other uses and the rate of new entries declines.

5. Post collapse phase, beginning approximately year 2007. With mass closureof shrimp farms the ecological footprint is reduced and environmentalpressure on yields relaxes. Mangroves are not entirely depleted becauseappropriation cost has risen with increasing scarcity of mangroves. A levelof coastal inland production much lower than the production peak in 1997is now sustained by the remaining mangrove stock. Mangrove shrimp farmproduction declines gradually toward zero because of greater fixed costassociated with mangrove scarcity.

Comparison of simulated to historical data

Figure 6 compares simulated behavior to historical data for the period 1970through 2000. The historical data (time path 1) represents production in thecoastal areas of Thailand only. Interior shrimp production based on theestimates of Flaherty et al. (1999) and Szuster (2003) has been subtracted fromaggregate production figures published by the FAO. The derived estimatessuggest that coastal shrimp farming in Thailand has undergone a seriouscollapse (Szuster 2003).

The simulation overestimates the early growth of production and produc-tion peaks slightly later than the historical data. It should be noted that thehistorical production figures are rough estimates (Rosenberry 2004) and the

Fig. 6. Comparison

of simulated andhistorical data for total

production in coastal

zones of Thailand.Estimated production

figures for interior

shrimp farming arenot included in the

historical data shown

on the diagram


simulated behavior is numerically sensitive to parameters and the shapes oftable functions. Given that our concern is with the basic pattern of boom andbust, the simulated behavior appears to adequately track historical data.

Policy analyses

Our policy objectives are twofold: (i) a sustainable shrimp farming industry thatcan provide sizeable benefits of foreign exchange earnings and employment;and (ii) conservation of mangrove resources that are essential to the sustainabilityof the shrimp farming industry, capture fisheries, rural incomes and biodiversity.The policy debate on shrimp aquaculture is bipolar. At one extreme are pro-ponents of high-cost technological solutions to reduce and eventually eliminatethe dependence of shrimp farming on ecological services. On the other areadvocates for sustainable shrimp farming based on conservation of naturalcapital and recognition of ecological carrying capacity (Kautsky et al. 2000).

Technology

Technological improvements include water treatment and recirculation systemsto reduce dependence on the environment, and species selection and breedingprograms to improve disease resistance. The benefits of these technologies canbe construed as a reduction in the shrimp farm ecological footprint. To test theimpact of gradual adoption of improved technology we conducted a simula-tion with exogenous 2.5% per year reduction in the industry’s ecologicalfootprint. By the year 2020 the average footprint is approximately one third ofthe value in 1975. The results are shown in Figure 7.

Production reaches a higher maximum than in the base simulation but apronounced boom and bust pattern is still present. The simulation implies thatfarmers will be unable to internalize benefits from technological improve-ments if the shrimp farm population is allowed to overcrowd and consume theecological carrying capacity.

Eco-taxes

A variety of eco-tax schemes have been proposed to promote sustainableshrimp aquaculture by discouraging over-exploitation of natural capital. Theseinclude a start-up tax on new shrimp farms to slow excessive growth of theindustry (Parks and Boniface 1994), a tax on variable inputs such as feeds toencourage farmers to reduce farming intensity (Bailly and Willmann 2001),and taxes on farms located on lands unsuitable for sustainable farming (Miller1999). However, the enforceability of taxes assessed directly on farmers ap-pears impracticable for the same reasons that enforcement of regulations oneffluents and land use has proven ineffective (Miller 1999, Bailly and Willmann


2001). Taxing shrimp exports appears to be a more tenable proposition. In astudy of coastal resource management in Thailand undertaken for the WorldBank, consultants recommended an ad valorem tax on shrimp exports to slowthe growth of the shrimp farming industry and to internalize some of theenvironmental costs of mangrove destruction and coastal pollution (MIDAS1995). Earlier modeling work (Arquitt et al. 2003) suggests that an export taxalone will not push the system toward sustainability or protect the resourcebase because it does not discriminate between farmers who abide in environ-mental regulations and those who do not.

Export tax with rebate

The export tax and rebate policy was inspired by the “feebate” policies describedby Ford (1995, 1999). We propose that an export tax and rebate policy mayhelp promote a large-scale sustainable shrimp farming industry and reducemangrove deforestation by indirectly taxing all farmers and rebating tax proceedsto licensed producers. Licenses would only be granted to farmers with opera-tions located in designated areas deemed suitable for shrimp farming. Also,the licensed farm area for a given region would be limited to the estimatedenvironmental carrying capacity. In essence the proposed tax and rebate policyis a means of enforcing zoning regulations and restricting total farm area.

A policy implementation sector (Figure 8) was developed to model theexport tax and rebate policy.

A unit export tax is assumed, i.e., a fixed money amount assessed on eachunit of exported shrimp. We assume that the tax in its entirety is added to

Fig. 7. Simulation

with exogenous

improvement intechnology


merchants’ required margin and is thereby transmitted to all eligible farmers.After a delay a rebate equal to the unit tax, and adjusted upward or downwardin accordance with the availability of tax funds, is paid to licensed farmers. Aunit tax is used because it eliminates uncertainties associated with percentagetaxes on changing export prices. Expected long-term rebate and expectedshort-term rebate are modeled with adaptive expectations (first-order smooth-ing) and influence expected profitability and the expected mark-up ratiorespectively.

The inflow of tax receipts to the tax fund is exports times the unit taxamount. An outflow represents disbursements to administration based on afixed yearly fraction. Administrative functions would include verification ofweights of shrimp sold by farmers, and the corresponding rebate amount owedthe farmer. Another outflow represents disbursement of rebates, the rebatepayment per farm times the number of licensed inland farms. An inventory

Fig. 8. Simplified causal structure of policy implementation sector


Fig. 9. (a)Sensitivity

of Total Thai

Production to exporttax and rebate policy.

(b) Sensitivity of

Mangrove ShrimpFarms Production to

export tax and rebate

policy. (c) Sensitivityof Inland Shrimp Farm

Production to export

tax and rebate policy.(d) Sensitivity of

Mangrove Area to

export tax and rebatepolicy

management structure seeks to maintain the level of tax funds at a desiredlevel by adjusting the rebate amount. Only licensed farms are eligible for therebate. The maximum area of licensed farms allowed is based on the perceivedecological carrying capacity, which embodies time lags associated with updat-ing perceptions of mangrove stock and industry footprint.

To test the export tax and rebate policy the Thai case model is used in ageneric sense. Insights gained through these tests can be extended to other


countries where shrimp farming industries are being planned or are in earlystages of development. Figure 9 shows impacts on total production, mangrovefarm production, coastal inland production, and the mangrove stock when thetax and rebate policy is implemented in 1975, the year of industry initiation.Time path 1 represents the base simulation with the unit export tax set to 0.Time paths 2, 3 and 4 represent cases with the export set to U.S. $1, 2, and 3 perkilogram, respectively.

Fig. 9. (Continued)


When the export tax is set to U.S. $1 the impact on the system is negligible.When set to $2 the overshoot and collapse pattern of total production isreduced; however, mangrove deforestation from the expansion of mangroveshrimp farms is still significant. When set to $3 the overshoot pattern is greatlyreduced and mangrove destruction by shrimp farm expansion is negligible.Production still declines gradually because the mangrove resource base isbeing continuously eroded by conversion to other uses. The simulations shownin Figure 9 indicate that the export tax rate is a behaviorally influential para-meter for the tax and rebate policy. To achieve the policy goals the tax must beset high enough to discourage the entry or continuance of unlicensed farmingoperations by reducing expected profitability.

Part of the tax receipts under the tax and rebate policy could be allocated tosupplement research and education programs encouraging farmers to adoptimproved technology or management practices. Figure 10 shows simulationresults when a U.S. $3 tax and rebate policy is implemented with a continuous2.5% reduction in environmental footprint associated with adoption of im-proved technology and management.

Fig. 10. Simulationof Mangrove Area,

Total Thai ShrimpProduction, Mangrove

Shrimp Farm

production, andInland Shrimp Farms

Production with

export tax and rebatepolicy and gradual

adoption of improved

technology

In this case production climbs to a higher level than with the U.S. $3 exporttax and rebate program alone and is sustained even as the mangrove resourcebase gradually erodes due to exogenous factors. As improved technology andmanagement become more widely adopted, the average ecological footprint offarms decreases, causing the environmental carrying capacity for the industryto increase. After a recognition delay the licensing limitation is raised to therecognized carrying capacity.


Implementation of this policy would necessitate the establishment of anenvironmental responsibility institution similar to that proposed by Saeed(2004, 1985). Such an institution would continuously monitor the man-grove stock, the industry footprint, and set appropriate quotas for shrimpfarming permits. The institution could also monitor production costs inorder to set the export tax to a level adequate to prevent entry of unlicensedfarms.

Discussion

The export tax and rebate policy proposed in this paper attempts to limit theindustry to the ecological carrying capacity and conserve the natural capitalbase by placing a prohibitively high indirect tax on the production of unli-censed producers, thus obviating the expenses and conflicts associated withcommand and control policies. Simulation experiments suggest that the taxand rebate policy can lead to a more sustainable production system. Is the taxand rebate policy realistic in terms of implementation? A number of keyassumptions must hold for the policy to be successful. Among these are thefollowing:

• Production is predominantly exported. In the case of Thailand over 90%of shrimp aquaculture production is exported. If significant domesticdemand exists or emerges, the farmgate price may not be forced low enoughto discourage unlicensed production. Domestic shrimp sales may be moredifficult to tax than exports.

• The export tax is shifted to producers. In our model the tax amount isautomatically added to exporters’ margin, meaning that the tax in itsentirety is transmitted to producers and none is absorbed by exporters. Thedegree of tax transmission is an influential assumption that warrants furtherinvestigation.

• Producers must have assurance that authorities will pay rebates. We modelexpected rebates with adaptive expectations (first-order exponential smooth-ing). In the real world adaptive expectations may not apply to cash rebatesfrom government bodies. Advance payment to producers or issuance of agovernment bond to be adjusted at the time the crop is sold may be neces-sary. An alternative may be to pay the rebate by subsidizing the costs ofvariable inputs for licensed farmers.

• An institutional structure for implementation must be put in place. Thirdparty arrangements would be necessary to certify weights and grades ofshrimp harvests at the time of sale in order to determine the amount ofrebate owed to eligible farmers.

• The policy must be implemented preemptively. For maximum effectivenessthe policy should be initiated early in the development process before the


mangrove resource base is depleted. The potential for sustainable shrimpproduction will decrease as the mangrove stock is depleted.

A limitation of the tax and rebate policy is that it focuses on mangrove protec-tion but does not directly address restoration of degraded mangroves. Thepolicy, however, could support reforestation efforts by restricting encroach-ment on replanted areas.

There is potential for the tax and rebate policy to work in concert with otherpolicies for sustainable shrimp production. We have discussed how a tax andrebate policy could allow farmers to capture benefits of technological innova-tion and expand production sustainably. Eco-certification and labeling forsustainable aquaculture is another policy now being promoted by a number ofinternational agencies and industry organizations.6 There is evidence thatseafood consumers are becoming concerned about the environmental conse-quences of their purchases, and may be willing to pay a premium for seafoodsthat are harvested or produced sustainably (for a review of certification andeco-labeling for fisheries see Wessells et al. 2001). Price premiums for eco-certifed shrimp produced under a tax and rebate policy could help cover thecost of implementing the policy. Arquitt and Cornwell (2005) apply systemdynamics to examine the influence of eco-certification and labeling on shrimpaquaculture.

The Thai case study helped us develop a hypothesis of shrimp aquacul-ture boom and bust and provided a structure with which to perform policyexperiments. The policy experiments, however, must be viewed as learning inretrospect. At the time of this writing Thailand’s mangrove resources havebeen depleted to the point where a mangrove-based shrimp farming industrycannot attain the high production levels shown in the tax and rebate policyexperiments. It is possible, however, that a tax and rebate policy could helpprotect remaining mangroves in Thailand and help enforce zoning require-ments for shrimp farms. There is now concern that shrimp aquaculture mayexpand into unexploited mangrove regions in Asia, Africa, and Latin Americaand continue the boom and bust patterns. The model primarily applies to theseunexploited regions where we hope it may contribute to preemptive policydesign for sustainable shrimp production.

Notes

1. FAO is the Food and Agriculture Organization of the United Nations.2. Estimates of average “by-catch” or incidental catch by shrimp bottom-

trawling range between 3 and 20 times the weight of harvested shrimp. By-catch is typically killed in the process of harvesting and thrown overboard.Bottom-trawling involves dragging a weighted net across the seafloor, caus-ing serious marine habitat damage ( Johnston et al. 2002).


3. An important service provided by mangroves is coastline protection againstwave action. Preliminary reports after the tsunami disaster of December2004 indicate that villages located behind intact mangrove stands incurredsignificantly less damage than those unprotected by mangroves. Govern-ments in the tsunami-affected region have announced intentions toplant mangroves to provide buffering against future tsunami events (FAO2005).

4. Shrimp are farmed in other coastal ecosystems not featuring mangroves,e.g., tidal flats in subtropical regions. The ecological footprint will be differ-ent in other ecosystems but the concept can still be applied.

5. The fully documented model in STELLA Research 7.2 is available from thecorresponding author upon request. The model includes detailed sectordescriptions.

6. For discussions of eco-certification and eco-labeling policies for shrimp seethe website of the Network of Aquaculture Centers for the Asia-Pacific(NACA): http://www.enaca.org.

Acknowledgements

The authors wish to thank the four anonymous referees for their valuable comments.We also thank Professor Andy Ford for his suggestions for improving the model.Finally, a special word of thanks is due to Professor Saeed, who supervised thisresearch in its earliest stages at the Asian Institute of Technology.

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a system dynamics analysis of boom and bust in the shrimp aquaculture industry

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